DOC

Economics 2

By Chad Washington,2015-01-22 19:39
12 views 0
Economics 2

1. Introduction

    In the current year, our country has made great achievements in the development of the industry, we are getting closer and closer, a modern industrial state. However, there are many of our obstacles, we can learn from international trade, too. As a government official, I just suggest, can be traded freely, and to enter the European Union (EU) as soon as possible. As a European country, the benefits of doing so is absolute.

2. Absolute advantage and comparative advantage

    In economics, the principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources.Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input. Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything;in that case, according to the theory of absolute advantage, no trade will occur with the other party.It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost.

    Comparative advantage was first described by David Ricardo, a British economist in 1817. effectively it states that: ‘even when a country has an absolute advantage over another country in terms of commodities they wish to trade it will still be to their mutual advantage to trade providing each country has a comparative cost advantage’.

    Example: The economist Paul Samuelson provided another well known example in his Economics. Suppose that in a particular city the best lawyer happens also to be the best secretary, that is he would be the most productive lawyer and he would also be the best secretary in town. However, if this lawyer focused on the task of being an attorney and, instead of pursuing both occupations at once, employed a secretary, both the output of the lawyer and the secretary would increase.

Example of comparative advantage:

    The economist Paul Samuelson provided another well known example in his Economics. Suppose that in a particular city the best lawyer happens also to be the best secretary, that is he would be the most productive lawyer and he would also be the best secretary in town. However, if this lawyer focused on the task of being a lawyer and, instead of pursuing both occupations at once, employed a secretary, both the output of the lawyer and the secretary would increase, as it is more difficult to be a lawyer than a secretary.

Example of Absolute advantage:

    1

    You and your friends decided to help with fundraising for a local charity group by printing t-shirts and making birdhouses.

    Scenario 1: One of your friends, Gina, can print 5 t-shirts or build 3 birdhouses an hour. Your other friend, Mike, can print 3 t-shirts an hour or build 2 birdhouses an hour. Because your friend Gina is more productive at printing t-shirts and building birdhouses compared to Mike, she has an absolute advantage in both printing t-shirts and building birdhouses.

    Scenario 2: Suppose Gina wasn't as agile with the hammer and could only make 1 birdhouse an hour, but she took a sewing class and could print 10 t-shirts an hour. Mike on the other hand takes woodworking and so he can build 5 birdhouses an hour, but he doesn't know the first thing about making t-shirts so he can only print 2 t-shirts an hour. While Gina would have the absolute advantage in printing shirts, Mike would have an absolute advantage in building birdhouses.

3. International Trade Barriers

    Effective use of economic globalization, the world's resources for countries to provide more development opportunities, but also greatly enriched and facilitated people's daily lives.

    Globalization means new economic growth, although growth in this period there is a risk, but the developed and developing countries in increasing national wealth, are the beneficiaries of globalization.

    As the world's international division of labor, economic globalization, every nation and nation-states are in economic and technological advances to get their deserved a chance.

4. International Trade Barriers

    The most famous tariff trade barriers. This is a tax on foreign products or tariff, artificially raise the price and hope to curb domestic demand. Sometimes, they may be used by the government as a way to increase revenue, if they feel they can not do the inward flow of goods.

     British stage in a special tax levied on imported cars. Its purpose is to try and protect from foreign competition of the British automobile industry. But it failed because of the UK population "aware" of the imported cars, in order to better value than the UK procurement of vehicles "imported" to "home" of the ratio of production of vehicles

    2

    increased steadily. This special duty is clearly not very effective.

     Embargo: These are extreme forms of barriers. A state of the embargo is actually said: "We will not allow you to import any quantity." These are often between countries or in more extreme cases, such as war, for example, has a very serious dispute can only be used when the Gulf War, Kosovo.

5. WTO in international trade

    WTO is a permanent independent of the United Nations, international organizations. All members of the WTO's MFN status; all WTO members to provide national treatment; directly involved in the new multilateral trade rule-making; stable, transparent and predictable multilateral trading system protection.

    Example: The Banana Dispute.The WTO ruled that the European Union discriminated unfairly against the US with its banana import rules.The WTO allowed the US to slap a $ 191 million sanction on the EU.Was it paid?We do not know but probably not.

6. Free Trade Zone

    Free trade zone, another name for the free zone, free market, free industrial zones, investment promotion zones and foreign trade zones. Free trade zone is two or more countries reach some kind of agreement or treaty through the abolition of tariffs between each other and with the customs of other measures with equivalent effect, in sovereign countries or regions outside the customs territory, set aside specific area to allow free access to foreign goods exempt from customs duties. In essence, is to take a free port customs quarantine.

    NAFTA (North American Free Trade Area) by the United States, Canada and Mexico, the three countries formed on August 12, 1992 on the "North American Free Trade Agreement" reached a consensus, and on 17 December the same year by the three leaders were signed in their respective countries. January 1, 1994, Agreement entered into force, announced the establishment of the North American Free Trade Area.

     First, the economic and trade development within the region have a positive impact on the United States, not only industrial manufacturing companies benefit from the high-tech industrial sector will also increase to Canada, Mexico's exports. Mexico's trade surplus with the United States will be increased.

    3

7. The Current Account

    Balance of payments is a country (in this case, the United Kingdom) and the international economy between all financial transactions. It is divided into two areas. First, the measure of goods and services trade and capital accounts, track inflow and outflow of British capital flows, the current account.

     The current account income and expenditure, and is divided into four categories. Including trade in goods: including export and import of goods; trade in services: this would be the result of export services import services. Income: from the employees' compensation to a very small extent, including direct and portfolio investment income and reserve assets; Current transfers: from balance of payments there is no corresponding exchange of goods or services.

     Capital account includes capital transfers and acquisition of non-production goods and disposal. Investment subsidies by the government and the government has agreed with the creditors do not need to be met

     Financial account, which is the direct portfolio investment and other investment and reserve assets of the flow.

8. Balance of payments in the UK

    The trends in the uk economy over the last 30 years show a marked increase in the balance of trade deficit. Even a very marked increase in the income generated in the income section has not been sufficient to overcome this deficit and therefore the current account balance has also usually been in deficit.

    However these deficits have generally been reasonably well balanced out by surplus figures in the capital account. There has also been a much more relaxed attitude in any event towards the balance of payments position. The reasoning is that whilst a deficit is not particularly desirable if it can be financed relatively easily then there is no real reason to allow this to cause problems in the uk economy. The uk economy has shown fairly consistent growth over the last decade and this has helped.

    10. a uk firm manufactures hard discs for a computer firm in the USA. The cost is ?100. the rate of the $ to the ? is $1.5 to ? 1. cost to the American firm is ?150. the rate change s to ?=$2 which means the pound is stronger and the cost of the disc to the American firm is now$200. the American firm may consider this to be too expensive and look elsewhere for a cheaper alternative. If the value of the pound then falls to ?1 to $1 then the cost to the American firm will be $100 and they are likely to purchase more at this cheaper price.

    The above example hopefully explains the effect that falls and rises in the value of a country’s currency can cause. Many businesses in the uk, particularly in the manufacturing sector complain bitterly about the strength of the uk pound.

    4

    9. The relationship of balance of payments and exchange rates However, the current situation, any country can not maintain the balance of payments equilibrium. If the income exceeds the cost, that the international income, the surplus, the exchange rate will lead to increased appreciation of the renminbi, exchange rate is not conducive to export, import help. If the international expenses exceed income, the deficit, which would lead to devaluation of the RMB exchange rate is conducive to export, is not conducive to imports.

10. Protectionism

    1)protecting industries: if a new industry is showing promise of growth and to become a major player, countries may feel a need to nurture this industry while it grows to become large enough and competitive enough to match foreign firms which are already enjoying economies of scale. These new industries are sometimes termed ‘infant’ or ‘sunrise’ industries.

    2)over specialization: some industries may be protected because they are almost the only one and if they decline drastically this could have a very severe impact on an economy.

11. The advantage and disadvantage of Euro

Advantage:

    1)In the future euro-zone gross domestic product and foreign trade volume will be higher than both the U.S. and Japan. After the launch of the euro, the single currency and single market will no doubt bring new work together to promote economic growth, making the European Union and the United States and Japan in the economic power of competition in a favorable position.

    (2)Economic competition is increasingly global, regional, group trend of the single currency is one of the most powerful weapon. The EU is the world's highest level of integration of regional groups, but the impact of volatility on the domestic market is still a lack of resilience.

Disadvantage:

    Some economists believe that such a large difference in the single currency area is harmful. They consider that the euro area monetary policy and interest rates decided by the European Central Bank, according to their own countries will not be able to adjust their economies. Public investment and fiscal policy will be in each country or region the only means of government intervention in the economy.

    Also it was observed that although the euro area and population and is responsible for setting interest rates by the Fed and monetary policy of the United States are similar.

    5

    However, compared with EU countries, U.S. states autonomy smaller and larger economic similarities. And the EU economy is not "sync", and in some countries is located in the bottom of the economic cycle, while others are at the top, different countries face different inflation pressures.

    a uk firm manufactures hard discs for a computer firm in the USA. The cost is ?100. the rate of the $ to the ? is $1.5 to ? 1. cost to the American firm is ?150. the rate change s to ?=$2 which means the pound is stronger and the cost of the disc to the American firm is now$200. the American firm may consider this to be too expensive and look elsewhere for a cheaper alternative. If the value of the pound then falls to ?1 to $1 then the cost to the American firm will be $100 and they are likely to purchase more at this cheaper price.

    The above example hopefully explains the effect that falls and rises in the value of a countrys currency can cause. Many businesses in the uk, particularly in the manufacturing sector complain bitterly about the strength of the uk pound.

12. The effect on individual and business

    Effect on individual: 1)transparency: the above also reduces the scope for price discrimination and will help create pressure to keep prices low. 2) Keeps interest rates lower: the commitment to low inflation should allow economies to operate with lower costs.

    Effect on business: 1)increased foreign investment: direct inward investment should be attracted because of the reduction of uncertainty. 2) Asymmetric interest rates: the uk operates a variable rate system. Most euro countries operate a fixed rate system.

13. Underdeveloped countries

They may be expected to increase taxes to help pay for investment but they don’t

    have a tax base.The aid programmers they get from the world bank or IMF often carry conditions which they feel are difficult to comply with, and are expensive. The UK is one of the countries which appears to recognize this and is acting to reduce the debt owed to it by LDCs.

14. About the Multi-Nationals company

    When the Multi-Nationals like General Motors company enter a country,they could bring somethings to effect a country,there have both side,for example,when the Multi-Nationals company,they must need many staff and worker to help theirs company,so they may bring many employment opportunities for the country,and also drove the development of national economy.On the other hand,the General Motors

    6

    also would have a negative effect on the local,for example,General Motors would contaminate the local environment.

    Birth rates are usually high with a low life expectancy. In the most affluent countries life expectancy is in the high 1970s and into 1980s. in the LDCs it may be as low as the 1940s.

15. The affect of EU about Free Trade Zone

    In the EU,because of relaxation of trade barriers in the EU area, there is no trade barriers and barriers, making more trade between countries easier.

    In addition, because in the European Union to encourage mobility and visa procedures between countries easier and more relaxed job, making the frequent movement of persons between countries, increase employment and promote each country's economy.

16. A problem facing of LDC

    According to World Bank statistics, the population of these countries, a total of 750 million, nearly half of them live on less than $ 1 a day. The highest proportion of the country's total illiterate population, 78.1% (Liberia); the highest infant mortality rate reached 16.2%, ranking the highest in the world.

    In these countries, per capita GDP under $ 200. Mozambique is the world's poorest countries, per capita GDP U.S. $ 60, about a thousandth of Luxembourg. Birth rates are usually high with a low life expectancy. In the most affluent countries life expectancy is in the high 1970s and into 1980s. in the LDCs it may be as low as the 1940s.

    7

17. Level 3 directory

    Trade in

    good

    Trade in Direct Investment The Current services Income Income AccountPortfolio

    Investment Income

    Central Current

    Government Transfer

    Other Sector Capital Transfer InternatiThe Capital Transfers Transfer onal Account Acquisition Paymen

    t

    Direct

    Investment

    The Financial Portfolio

    Account Investment

    Other

    Investment

    Reserve

     Assets

18. Conclusion

    Company should know that there are many gains come from trading internationally. But many countries have lots of trade barriers to protect their own industries, because they have absolute or comparative merits. Therefore, organization like WTO or EU provides a basic flat form like free trade to transfer goods or services. Otherwise, BOP is the exceedingly main standard to ensure the level of transaction between one country and others. It makes of current account, capital account and financial account. The European countries utilize single currency in recent years; growing developed countries place their extra capital into LDC or NIC.

    8

18. Reference

    http://www.austrade.gov.au/UK-Tariffs-and-non-tariff-barriers/default.aspx

http://en.wikipedia.org/wiki/Comparative_advantages

    http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageExcise_ShowContent&id=HMCE_CL_001196&propertyType=document

    9

Report this document

For any questions or suggestions please email
cust-service@docsford.com